Gene Sperling and the institutionalization of the revolving door

By Felix Salmon

January 6, 2011

David Corn has a long piece in Mother Jones defending the choice. (He's not the only person to have this idea: Jacob Weisberg has a similar column.)
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It now seems all but certain that Gene Sperling is going to get Larry Summers’s (and his own) old job at the NEC. And David Corn has a long piece in Mother Jones defending the choice. (He’s not the only person to have this idea: Jacob Weisberg has a similar column.) I’ve said my piece about Sperling; there’s no point relitigating this. But it’s fascinating to see how Corn reports on the institutionalization of the revolving door between Wall Street and Washington, to the point where taking $887,727 from Goldman Sachs is positively self-abnegatory:

After the Clinton administration ended in 2001, Sperling, according to a former Clinton administration aide, spoke to several “wise men” about what he should do next. As a former NEC director, he was in great spot to cash in. And he received the same career advice from all of these counselors: go to Wall Street for the next eight years, make millions, and then return to public service (when there might be a Democratic president). He didn’t follow this guidance. Instead, Sperling devoted most of his time to addressing the challenge of global poverty…

A friend of Sperling adds, “After having been head of the NEC for Clinton, he could have immediately gone to Wall Street and made a lot of money. That’s what most people in his situation do. But he didn’t. A lot of us who know him scratched our heads about that.” …

At some point, according to a source familiar with the episode, Goldman Sachs approached Sperling for advice on globalization… On the advice of friends, he requested that he be paid what the investment firm might pay a top lawyer or dealmaker: $70,000 a month.

Corn never identifies the “friends” and “wise men” who sagely intoned, when asked for their opinion, that Sperling should go off and make millions of dollars. But it’s easy to guess that Rubin and Summers were among them — not least because they, too, did exactly the same thing upon leaving the Clinton administration.

If the revolving door is really as institutionalized as Corn says that it is, that’s a very serious problem — and all the more so for the fact that people like Weisberg try to paint it as a positively good thing:

I suppose that in a perfect world, officials would be members of a flagellant order, coming to Washington from their monastic cells and reaffirming their vows of poverty afterward. But that wouldn’t work, either, because economic policymakers would have no feel for markets, business, or life in the real world.

It’s worth pushing back against this notion that earning a seven-figure sum on Wall Street automatically gives you a feel for markets and business — or even that in order to have a feel for markets and business, you have to earn a seven-figure sum on Wall Street. Neither is true. Advising Goldman Sachs on setting up a charitable foundation might teach people a lot about how to navigate the internal politics of Goldman Sachs, but that’s about it. And while there are certainly many highly-remunerated bankers who do know a lot about markets and business, there are equally many who don’t. Wall Street jobs tend to be hyper-specialized: a detailed knowledge of, say, the custody trail in reverse repo transactions is highly unlikely to give you any insight into the state of the US economy.

As the testimony at the FCIC from the Goldman executives involved in the Abacus transaction shows, bankers tend to live in a highly distorted reality where the outrageous is accepted as a normal and ethical way of conducting business: insofar as working on Wall Street does give people a feel for how business is conducted, it can give people a very distorted impression indeed. Like, for instance, the impression that an annual income of $2.2 million is head-scratchingly low, rather than mind-blowingly high.